Retail Real Estate Fairing Better, But Many Challenges Still Exist

by CoyDavidson on June 21, 2011

U.S. Retail Highlights | Spring 2011

Compared to the dismal conditions of two years ago, the retail leasing market is considerably better as the first half of 2011 comes to a close. Yet, for many retailers and landlords, the retail landscape still remains very challenging. While retail sales have been inching higher for much of the past year, the gains have been exceptionally uneven with discount and high end retailers thriving, while mid-range retailers continue to struggle in the face of lackluster job growth, stagnant wages, restrictive credit conditions, higher input costs, falling house values and sharply higher gas prices. However, the economy continues to grow, new entrants are entering the market and many existing retailers are poised for growth.

Latest Consumer Confidence Index Falls to 60.8 in May from 66.0 in April

Reflecting the fragile nature of the U.S. consumer, the Conference Board’s Consumer Confidence Index (CCI) still remains well below its long-term average. For the first five months of 2011 the CCI has vacillated between 60 and 70. While this represents a considerable improvement from the lows experienced in 2009, it is still below 90 that is regarded as a healthy level.

Consumer confidence is a key variable which can act as an important barometer for retailers and landlords. The soft labor market and still-uncertain economic backdrop are both preventing consumers from increasing their spending behavior. Until consumers feel more confident about job security and see a drop in gas and food prices, it is hard to foresee the CCI moving above the 60 to 70 level. At these levels, most consumers will be hesitant to make big purchases and will be preoccupied with a search for value at the best possible price.

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